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Thursday, April 19, 2012

Commission's efforts to reform EU budget actually make things worse

As you may be aware, the Commission last year tabled its proposal for how the EU's budget should look like over the next long-term budget period (set to run between 2014 and 2020). With the exception of some modestly positive elements - such as a "performance reserve" for regional funding (albeit very small) to provide incentives for regions to actually deliver results and a bit more cash on R&D - the Commission's proposal is in many ways making an already irrational, wasteful and unresponsive budget even worse.

For example, through the "greening" of the so-called Pillar I of the CAP (involving 7% of farmland to be set aside to provide ‘ecological focus areas’, a requirement to rotate crops and some other elements, more here), the Commission has opted for an almighty fudge that further undermines effective production while not delivering any significant green benefits in return. Also, despite one of the claimed objectives of the Commission's proposal being to "simplify" the budget, the exact opposite has happened. And remember, direct CAP subsidies under Pillar I are already rather bizarre things. As they're based on land ownership or historical entitlement, these are subsidies to a random group of people rather than directed at any specific outcome. This is of course what the Commission is trying to correct through the "greening" proposals, but, alas, it has failed miserably.

This was yesterday echoed by the EU's own Court of Auditors, which noted in an evaluation of the proposal,

"The Court considers that the legislative framework of this policy remains too complex. For example, six distinct layers of rules govern rural development expenditure. With respect to cross compliance, the Court considers that, in spite of the proposed reorganisation, the complexity of this policy continues to make it difficult for paying agencies and beneficiaries to administer.

In spite of the claim that it focuses on results, the policy remains fundamentally focussed on spending and controlling expenditure and therefore oriented more towards compliance than performance."

Pretty damning.

Another example of how the Commission's new proposal is making matters worse is the new 'intermediate' funding category proposed for distributing the EU'sstructural funds, for regions with a GDP between 75% and 90% of the EU average. Without reiterating all the flawsof the structural funds, this proposal would actually be a blow to focussing the funds on the genuinely poor regions, where they can have the largest comparative impact (see p. 17-18 here for a more detailed discussion). As the Swedish Europe Minister Birgitta Ohlsson has pointed out, this will mean that potentially more cash will go to the EU's richest countries, which will continue to send each other money via Brussels. "We're totally against introducing this category", Ohlsson has said. We certainly agree.

Incidentally, EU Budgetary Commissioner JanuszLewandowskiannounced on Monday that there was a €1.49bn surplus left over from last year’s EU budget, which will be credited against member states’ planned contributions for next year’s budget. In other words, despite the "go for broke" nature of the EU budget (if you know of that board game - you need to spend your money as quickly as possible in order to win), member states still don't manage to fully spend all their allocated funds. And yet, next week, the Commission is expected to propose a 5% increase to the EU's 2013 budget. This links to the lack of absorptioncritera and performance controls in the EU budget, although its a long discussion that is worth saving for another entry.

What's clear is that there's something fundamentally wrong with the EU budget. Come to think of it, it's actually quite fascinating that this anomaly is allowed continue to exist at the heart of Europe.

PS. If you want to know how to make sense out of the CAP and the structural funds - making them help rather than hinder jobs, growth and the environment in Europe - check out our recent reports on the topic, here and here.